Thoughts on business, entrepreneurship, and life from a Silicon Valley entrepreneur and writer.

Wednesday, September 29, 2010

Did Peter Thiel Make The Single Best Investment In History?

In 2005, Peter Thiel paid $500,000 for a 10% stake in Facebook.

Today, with Facebook's estimated value topping $33 billion, his stake is worth between $2-3 billion. That's a 6,000x return on his capital in 5 years.

I'll put it this way--if you made a $250 IRA contribution in 2005, it would have to be worth $1,500,000 today to match that return.

I never thought I'd see a better return than Google. Sequoia and Kleiner Perkins paid $25,000,000 for a 20% stake in Google.

At its IPO, Google was worth $27 billion, making that 20% stake worth $5.4 billion. That's a stunning 216x return but still more than an order of magnitude short of the return Peter Thiel would earn if Facebook went public today.

From what I can tell, that one deal was the single best investment in history.

22 comments:

Anonymous
said...

Chris, it may be that his original 10% has been diluted after follow-on rounds, and that FB may not be worth $33B. Let's assume that after VC/PE investment in FB, his 10% share went down to 5%, and that FB is at least worth half of $33b, that would still mean he's still booking 1500x on his money. -Semil

1) Facebook's dilution has been minimal, thanks to very high valuations. That's why I estimated the value of Thiel's stake at between $2 and $3 billion.

2) I don't know what price Andy Bechtolsheim got in at (he famously wrote the first $100K check to Larry and Sergey). The KP/Sequoia investment took place at a $125 million post. If the Facebook investment is a 6,000X return, about 30X better than Google, Andy might very well have a better return if the angel investments in Google were done at a premoney of $4 million or less.

3) Benchmark's $6.5 million to $5 billion is less than 1,000X, which I'm afraid makes it amazing, but not the overall ROI winner.

For a close approximation Bezos invested $250k in Google's seed round that is now worth roughly $1.5bn: http://www.homethinking.com/brontemedia/2009/10/05/working-hard-is-overrated-part-ii-the-evidence/

Also, Thiel has materially sold down his stake in Facebook, according to David Kirkpatrick in his book. He's one of the biggest sellers on SecondMarket, so not only has he made the greatest investment, he's taken most of it off the table as well.

Looks like being a Google seed investor was also good for 6,000X ($250K --> $1.5 billion). But since Google is already public, I would give those investors the edge over Thiel...unless Facebook rockets up another 10X before it goes out.

paper profits mean nothing. when the valuation is based on a small deal or on current investors the valuation should be questioned. ... lets see how much facebook is worth in an M&A or ipo when investors will meet $.

Coool, got an idea on how this kind of investment would mean in the future. I think it's a great gamble if you invest something on websites and any other tech related stuff. I mean look at how he will get those figures if this estimate is precise.

I'm not sure I would call his actions an investment. It was more of a speculation given that there were no free cash flows to even put a reasonable value on the business at the time the capital changed hands. He took a gamble and got lucky on his speculation. That happens to a few people every once and a while. No Warren Buffett is he.